Captains Speak     

Published: October 31, 2024
Updated: October 31, 2024

Bharat Forge

Defence orders driving pace of growth

“The management expects positive momentum for the company, going ahead, in the Indian entities across forging, casting and defence. The company is in expansion mode and has planned a combined capex for fiscals 2025 and 2026 to the tune of Rs 1,000 crore. In order to finance this capex programme and meet other financial requirements, the company has planned to raise up to Rs 2,000 crore by way of issue of equity shares, debt issues or any other securities convertible into equity shares, or a combination of such securities.” This was revealed by Amit Kalyani, Vice-Chairman and Joint Managing Director of Bharat Forge.

Discussing the performance of the company during Q1FY25, Mr Kalyani said that “in Q1 FY25, revenue growth was driven by 26% growth in domestic business, as execution of defence orders picked up. In Q1 FY25, the EBITDA margin improved due to a pick-up in defence and growth in oil & gas. The domestic CV business remained soft YoY as domestic demand remained tepid due to elections. The long-term outlook for the sector remains promising, driven by the government’s focus on expanding the road network and higher public capex. BFL’s growth in this sector will be driven by a combination of underlying market growth coupled with growth driven by content increase.”

According to Mr Kalyani, domestic PVs recouped slightly on a YoY basis. The company hopes to benefit from longterm structural market growth and premiumization of the sector. The domestic industrial segment grew by 45% YoY. Execution of defence orders drove the stellar performance. The outlook for the business is very promising on the back of a strong spend on power infrastructure and new capacity additions in the pipeline in India. In Q1 FY25, America contributed 68% to total revenues, Europe 27% and Asia 5%. Steady execution of defence export orders and recovery in the oil & gas business sustained the operating performance.

Referring to new orders, Mr Kalyani revealed that the group secured new orders worth Rs 980 crore across defence, ferrous & aluminum castings, and the core forging business. The defence business posted revenues of Rs 642 crore in Q1, registering a jump of 147% YoY. With order wins of Rs 775 crore, the executable order book as of June 30 stands at Rs 5,400 crore, with a mix of artillery guns, vehicles and consumables. JS Auto continued to witness strong momentum and during the quarter recorded revenues of Rs 159 crore, up 26% YoY.

EXPORTS STABLE

As the company embarks on various productivity and cost improvement measures, the management expects the operating profitability, amply supported by organic sales growth, to improve over the next 24-36 months. The overseas operations recorded sales of Rs 1,320 crore. The weak CV demand in Europe was a spoiler in an otherwise stable quarter for the overseas operations. The management expects losses in the US to come down substantially by the end of FY25.

According to Subodh Tandale, Executive Director, the export CV business continued to remain steady. Inventory levels in the supply chain remain reasonable while sales momentum sustains. The PV export business remains on course to consolidate its gains over the last three years. The company continues to focus on increasing its marketshare and content per vehicle.

The industrial export business continued to benefit from the diversifications strategy. With the appropriate capacity mix and offerings across multiple sectors, the company hopes to benefit from superior operating leverage. The demand environment (ex-Europe) remains sanguine as spend on infrastructure is a key focus area globally. The company reported a shipment tonnage of 67,501 in Q1FY25, a decrease of 0.8% YoY.

Looking ahead to Q2FY25, the company expects continued positive momentum in the Indian entities across forging, castings & defence, and overseas operations.

The company initiated the transfer of a 39.43% stake held in TMJ Electric Vehicles to Bharat Forge International, a wholly-owned subsidiary, at a fair value assessed by an independent valuer.

The company also initiated closure of Indigenous IL, a non-operational subsidiary of the company. The company converted a $ 12 million loan given to Bharat Forge America Inc into equity. BFA is the holding company for the company’s US operations. The conversion of the loan into equity will be on an arm’s length basis and will be based on the report of an independent valuer.